TRANSFORMATION OF THE UNDERWRITING PROCESS
An insurer can combine a business rules engine (BRE), predictive scores and data management to transform the underwriting process.
Pricing becomes more fine grained as predictive scores enable the creation of more tiers. An insurer with a predictive score range from 200 to 800 could produce ten, twenty or even sixty tiers, based on segments within the overall range. In practice, an insurer would probably go from three tiers to six or twelve. This in turn broadens its market appetite, as it is able to provide attractive prices to applicants at the higher and lower ends of the risk spectrum. An insurer with only three tiers is not likely to have an appropriate rate for an inexperienced driver with two citations, or for a person driving for thirty years with a totally clean record and low annual mileage. However, an insurer with twelve tiers can have predictive score-driven tiers for both drivers.
Even more importantly, an insurer can offer accurate prices to applicants everywhere on the risk spectrum. Predictive scores developed through sound analytics result in prices neither too high nor too low. By having more accurately priced tiers, the insurer is reducing the amount of adverse selection in its own book, and increasing the adverse selection in its competitors’ books.
The insurer also becomes a more attractive business partner to independent agents in several ways. Producers will prefer doing business with a company that accepts 95% of the people who walk in the door, rather than a company that accepts only 60%. As the business rules engine increases speed, accuracy, consistency and auditability, producers know they will get a correct answer quickly. And as the insurer’s internal efficiency increases, producers will have more access to human underwriters for their difficult cases.
Data management technology also plays a key role as it assembles internal and external information and reviews it for completeness and consistency. Staff spends time on exceptions, not on routine applications. As described above, the BRE can order supplemental information only when doing so is economically justified. The BRE calculates a predictive score, assigns it to a tier, and decides whether to accept, reject or submit an application for further review. The BRE can also calculate the rate, although that task is more typically done by a rating engine (which is itself a kind of specialized BRE).
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